Switzerland has cleanest accounting, Sri Lanka not so much

Posted by Mark Jolley
  • Transparently.AI Global Accounting Manipulation Rankings released
  • Switzerland poses lowest manipulation risk in 40-country study
  • Mexico, India, Norway, Germany among surprise results

Accountants are earth’s equivalent of the Mandalorians of Star Wars fame.

True, they lack armour made of beskar, they don’t wear helmets all the time, even when kissing, and they don’t possess jetpacks. But, in almost every other respect, accountants are modern-day Mandalorians.

This assertion will be self-evident to most readers but for the sceptics out there, suffice it to say that accountants, like Mandalorians, follow a very mysterious creed. That creed is known to the outside world as GAAP: Generally accepted accounting principles.  

The GAAP Way

Most accountants simply refer to GAAP as “The Way.” When questioned why financial accounts were prepared in a certain manner, CFOs will invariably respond, “This is The Way.” Anyone who has worked in an accounting office will confirm this is true.

As with all creeds, GAAP began as a seemingly simple set of principles, 10 in all.  The principles embody easy concepts: be consistent, tell the truth, be prudent, keep your helmet on, and so forth.

Behind this façade of simplicity, however, lies the complex world of reality. Not all accountants are created equal. Not all follow the creed. Some stray. They succumb to earthly temptations to smooth earnings, to inflate revenue and to hide expenses. They manipulate accounts. They do not follow The Way. 

All this, of course, raises the perhaps most-important question facing humanity in these difficult times: Where is earth’s Mandalore? Where do the purest adherents of GAAP reside? Where is this earthly paradise with the cleanest corporate accounts?

And where do those who have fallen from The Way reside? The apostates with the most manipulated balance sheets, the most distorted income statements and horribly disfigured cash flow statements?

For many hundreds of years, as civilizations rose and fell, this question remained unanswered. Fortunately, a little company from a settlement known as Singapore in the outer rim of our own galaxy, can now answer this age-old question. 

Transparently.AI Manipulation Risk Analyzer

Using AI and forensic accounting trickery, Transparently.AI has developed accounting fraud-detection software known as the Transparently.AI Manipulation Risk Analyzer

This tool offers a manipulation risk score for practically every listed company on Earth. The score is on a 0-100 scale, where the higher you go, the greater the joint probability that a company is manipulating its accounts and will eventually fail.

Note that this is a probability, not a certainty, but the back-tested results of the system are deeply impressive.

By taking this risk score, Transparently.AI can create national risk scores by weighting the score for companies by their market capitalization. Small companies have a small weighting in the national score, while large companies have a large weighting.  

By taking the resultant scores for each country, Transparently.AI is able to produce a global ranking of accounting manipulation: The Transparently.AI Global Accounting Manipulation Rankings. 

In producing this ranking, they eliminate countries with fewer than 100 stocks and eliminate countries where a single stock dominates the market, such as Saudi Aramco in Saudi Arabia.

Transparently.AI Global Accounting Manipulation Rankings

The resulting scores are shown in Figure 1. The table ranks countries in order of least manipulation risk to highest.

The Transparently.AI Global Accounting Manipulation Rankings reveal that Switzerland, with a weighted manipulation risk score of just 20.8%, is earth’s Mandalore. This is somehow appropriate for a nation with a history of impartiality and fairness. 

Denmark also appears to have a high concentration of followers of The Way. Thereafter, dilution of the GAAP creed becomes more pronounced.

Switzerland, with a weighted manipulation risk score of just 20.8%, is earth’s Mandalore. This is somehow appropriate for a nation with a history of impartiality and fairness. 

To provide a comparison of what might have been expected by many, column 4 shows the country trustworthiness scores published each year by US News and prepared by Professor David Reibstein at the Wharton School of the University of Pennsylvania in association with BAV Group, a unit of global marketing communications company WPP.  

The trustworthiness ranking is based on various attributes of trustworthiness asked in a global survey of more than 17,000 people. 

Based on this survey, we found a number of positive and negative surprises in our accounting manipulation rankings (highlighted in green and red, respectively, in the table). 

The biggest surprises on the positive side are likely to be India and Mexico, both of which have a manipulation score that is vastly better than the trust score. 

The other big positive variations are the US, Japan and Vietnam. Japan will be a big surprise for those who fail to understand the Mandalorian connection. Ancient samurai headgear was likely modelled on a beskar helmet.

The biggest disappointments, based on the trust ranking, are likely Belgium, Norway, Germany and South Korea. Belgium is full of politicians and so probably not such a surprise. Norway is full of humpback whales, the most honest of all animal species.

Does this ranking conform with your expectations? 

Fig. 1: Global Accounting Manipulation Rankings

Ranking Table

Source: Bloomberg, Transparently.AI, usnews.com